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A Good First Fiscal Step

When Gov. Pat McCrory released his first state budget plan on the morning of March 20, I happened to be driving to Charlotte for a meeting. Perhaps it was my imagination, but at the precise moment his aides passed out the budget in Raleigh, I think I heard a loud crash as a teetering tower of political hyperbole and conspiracy theories suddenly collapsed in a heap of confusion.

To hear some tell it, McCrory and his chief budget officer, Art Pope, had been scheming to blow up state government. They were going to defund the schools, abolish the safety net, plow up the roads, and sell off what was left to the highest corporate bidder. Large chunks of the tax code would disappear, as would the jobs of large swaths of the public workforce.

So when reporters, analysts, and activists got their hands on the governor’s budget, they seemed to be shocked to see a serious, carefully drafted, and persuasively argued plan to rebuild the state’s finances, refurbish its major agencies, and renovate its aging buildings and infrastructure.

After years of weak or negative growth, the state’s General Fund revenues are projected to grow about 4 percent in each of the next two years. That’s enough to keep up with basic needs, offer modest pay raises for teachers and state employees, and fill some fiscal holes, particularly in the areas of Medicaid and infrastructure repair. But it’s not enough to fund major new spending initiatives – and McCrory didn’t propose any.

The idea that a new governor might be willing to make his reputation on cleaning up the messes left by his predecessors, rather than create new signature messes of his own, may seem novel in political terms. In practical terms, in benefits extended to North Carolina taxpayers, it is a welcome idea.

McCrory’s proposed budget is about $50 billion for the 2013-14 fiscal year, including $20.6 billion in General Fund programs (funded by the state’s income and sales taxes, for the most part) plus highway funds, federal funds, and other accounts. While the General Fund budget would rise modestly over the previous year, the overall budget would shrink a bit.

Over the next two years, the governor’s plan would shore up the state’s fiscal position by more than $1.4 billion through a combination of enhancing the state’s formal cash reserves ($600 million), repairing the state’s physical assets ($367 million), and leaving some General Fund money unspent in case of emergencies ($463 million). If past governors and legislatures had budgeted in a similarly conservative fashion, North Carolina governments wouldn’t have experienced as much fiscal turmoil during the recent deep recession and weak recovery.

Furthermore, when the McCrory administration comes back in 2014 with a revised budget for the second year of the biennium, the governor and his top aides will have a better sense of what broader changes or programs they want to initiate. These could include infrastructure investment, tax relief, or some combination. Building reserves now means a more stable framework for those policies in the future.

I’m not going to say I like everything in McCrory’s budget plan. It has tens of millions of dollars in targeted subsidies for corporations that I’d rather spend on core public services or return to the private sector in the form of tax cuts. While it puts an end to the annual practice of transferring money from the Highway Trust Fund to the General Fund, I’d go ever further to redirect revenue from gas and car taxes to road construction and maintenance, where it is most needed. My John Locke Foundation colleagues will soon publish an alternative budget that addresses these matters.

In the main, however, I think McCrory and his budget team pursued a wise strategy of focusing on the state’s balance sheet – its long-term assets and liabilities – rather than just making special interests happy in the short run. The fact that the budget also confounded their critics was just an entertaining coincidence.

Hood is president of the John Locke Foundation, which has just published First In Freedom: Transforming Ideas into Consequences for North Carolina. It is available at JohnLockeStore.com.